What happened
Shares of Shopify (SHOP 4.76%) closed out the last week of trading up 17%. The e-commerce services company's stock gained ground on the heels of comments from the Federal Reserve's latest meeting suggesting that the central banking body may take a softer approach to future interest rate hikes.
NASDAQ: SHOP
Key Data Points
The Fed has been raising interest rates at an aggressive pace in hopes of combatting inflation this year, and the unfavorable macroeconomic conditions have crushed valuations for growth stocks. Recent comments from the central bank's leaders suggested that rate hikes may begin to moderate in the near future, and investors' hopefulness for a potential shift in approach helped spur big gains for Shopify stock over the last week of trading.
So what
With Fed officials indicating that a rate hike this month could come in below the 75 basis-point increases that have been the norm lately, investors poured back into growth stocks. The growth-and-tech-heavy Nasdaq Composite index ended the week up roughly 2.1%, and Shopify stock benefited from the positive market momentum. If the Fed begins shifting to a less hawkish position on interest rates, investors would likely be willing to assign more growth-dependent valuation multiples to stocks and that could support continued bullish momentum for Shopify.
Now what
Shopify estimates that gross merchandise volume conducted through its platform will come in ahead of growth for the broader U.S. retail market in the fourth quarter and that revenue for its merchant-solutions segment will be more than double that of growth for its subscription-solutions segment. On the other hand, the company expects that operating expenses will rise on a sequential basis in Q4 and that the business will post an overall non-GAAP (adjusted) operating loss for the year.
Even after the recent relief rally, Shopify stock has fallen roughly 67% year to date and 73% from the lifetime high that it reached in 2021. With a market capitalization of roughly $74 billion and the company valued at approximately 9.9 times this year's expected sales, Shopify still has a growth-dependent valuation. But the stock could be a worthwhile buy for long-term investors who are willing to embrace potential volatility in the near term.
